AMT Calculator

The Alternative Minimum Tax (AMT) is a parallel tax system that ensures taxpayers with significant income pay a minimum amount of tax. For ISO holders, the bargain element (FMV minus strike price) at exercise is an AMT preference item that gets added to your Alternative Minimum Taxable Income (AMTI).

The AMT Calculation

The IRS computes your tax two ways: regular tax and tentative minimum tax. You owe AMT only if the tentative minimum exceeds your regular tax. The tentative minimum is calculated by adding AMT adjustments (including the ISO bargain element) to your taxable income, subtracting the AMT exemption, then applying AMT rates of 26% and 28%.

AMT Credit Carryforward

Any AMT paid on ISO exercises generates a Minimum Tax Credit that carries forward indefinitely. In future years when your regular tax exceeds your tentative minimum tax, the credit reduces your regular tax dollar-for-dollar. This makes the AMT from ISO exercises effectively a timing difference rather than a permanent additional tax — though the cash flow impact in the exercise year is very real.

Strategies to Manage AMT

Spreading exercises across multiple tax years can keep you below the AMT threshold each year. Exercising early in the year gives you time to do a same-year disqualifying disposition if the stock drops — which eliminates the AMT adjustment. Timing exercises with years of lower regular income can also minimize AMT impact.